To create 2.4 million jobs invest excess corporate cash: study

February 16, 2012

"Investment in new plant and equipment could help pick up the slack from reduced government expenditure, boosting payrolls and providing a much-needed jolt to economic activity," says UMD researcher Jeffrey Werling. Credit: UMD

U.S. corporations have far less cash on hand to invest than popularly believed - but enough to provide a significant economic stimulus and renewed employment growth in the midst of a tepid economic recovery, concludes a new study by University of Maryland economic researchers.

The study projects that if corporations invested their "excess" cash reserves in capital projects, it could generate as many as 2.4 million jobs over the next three years.

"We estimate that non-financial corporations are holding about $508 billion in excess cash, about one-fourth the size of the 'cash hoard' figures regularly thrown around in the U.S. media," says University of Maryland economist Jeffrey Werling, executive director of the Inforum Research Center. "However, this is still more than three percent of gross domestic product (GDP). Spending even a fraction of these cash reserves on capital investment could substantially boost economic growth and employment."

The Inforum study was commissioned by the UN's International Labour Organization (ILO) as part of its Global Employment Trends 2012. The ILO asked Inforum to project how increased corporate investment could help accelerate the U.S. recovery.

"It's not surprising that U.S. industry would be tight-fisted given the highly uncertain economic environment, but the consequence is a low level of total investment, economic growth and job creation," Werling explains.

"Now, as government fiscal austerity hampers U.S. economic growth, new private spending becomes essential to close the employment gap," he adds. "Investment in new plant and equipment could help pick up the slack from reduced government expenditure, boosting payrolls and providing a much-needed jolt to economic activity."

PROJECTIONS

Using its dynamic model of the U.S. national economy, the Maryland team estimated that expenditure of all the $508 million cash reserve in industry operations across three years starting in 2012 could:

This shows the impact of increased investment on US Employment, millions of jobs, 2011 - 2015.
See larger graph here: http://ter.ps/d8 Credit: Inforum/UMD

Add an additional 2.4 million jobs by 2014, reducing the unemployment rate 1.5 percent; Increase U.S. GDP one per cent in 2012, 1.5 per cent in 2013, and 1.6 per cent in 2014.

A more conservative assumption that only half of the excess cash reserves are spent on capital investment creates more than 1 million new jobs over 2012 to 2013, the study finds.

INFRASTRUCTURE BANK

A second scenario envisions creation of an "Infrastructure Bank" into which companies could invest a portion of their cash. Bank deposits would support infrastructure investment projects throughout the economy.

A key feature is the introduction of a tax amnesty program for companies' overseas cash, enacted with a requirement that repatriated funds be invested for three years in an infrastructure bank. These resources would be made available to support a variety of public infrastructure improvement projects throughout the economy. The assumption is that investment in state, local, and federal structures would increase by a total of $250 billion between 2013 and 2016.

This investment is projected to boost GDP about 0.8 per cent in 2014 and 2015, providing employment for an additional 1.1 million workers, the study concludes.

CASH HOARD ESTIMATE

Inforum estimated excess cash holdings among U.S. corporations by comparing current and historical ratios of liquid assets to current liabilities. The current ratio was found to be more than 14 percent greater than the historical average, implying that $508 billion of cash holdings are beyond levels needed for normal operations.

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16 comments

This 'model' does not tell the 'cash hoarders' *what* to invest their assets in. Given the recent history of bad investments in various green technologies (solar power, wind power, electric cars), including massive Federal 'stimulus' funds, the 'hoarders' are understandably reluctant to invest when the economy is still so turbulent.

Greed is not a criminal offense. Who cares about jobs when I can invest and off-shoring to Asia, paying them peanuts for fat profits? Contrary to what many believe, life is not fair, and if i and our clans can step on your heads to be richer without braking laws, tough luck to you lot.You just have to practice more Yoga and bend down!

Jobs are created by demand for goods and services. of course, even when there is demand, nothing can move forward if the public has been bled dry. While "greed" sounds "evil". etc. it really comes down to trade balance. I do not believe you can have sustained prosperity with sustained trade deficits. Consider the national economy as a household economy. Constantly spending more than you make can only be ruinous. I am refering to thw constant outward flow of capital, not the equally ruinous Federal Budget Deficit. In the end, the "inflation" tax will nullify Social Security, etc. As far as companies outsourcing jobs due to cheap labor, this is not greed, just smart. The management goal is to exact the highest possible profit in order to achieve the highest possible stock price. It is the government's job, not the private sector to look after the welfare of a nation's people. Seems bad, and it is. Government was supposed to manage trade, but, lobbyists distorted the mission.

As far as investing goes, when everthing coming out of your Engineering Department gets stolen by the competition, the Manufacturing Floor remains idle. When the Domestic demographic has less and less to spend due to falling real wages, demand suffers further. With rock bottom shipping costs, Global Financial Entropy will surely occur. When central planned economies can force a beneficial delay in equalization, the Trade Deficit continues. When we're so broke we can no longer even by a Wal-mart, THEN the trade begins to equal. Dickensian at best. Things that cannot be outsourced are services and agriculture.

We were taught in economics 101 that the difference between a recession or a depression verses a booming economy depends on just one factor and that is confidence. When currency is held verses circulated you get doldrums or stagnation. All it takes is the situation to be seen as I better invest so I don't miss out on this verses I better make sure I have food money for a few months just in case. It isn't just the large corporations that generate the first 'push the general public has much more influence but takes more confidence to gett the to invest. Give the people and business's something credible to see as worth taking the risk and watch how fast things turn around. The trade deficits will sort themselves out. Look at the history repeating. Japan in the 50-60's. Korea, Indonesia, Hong Kong etc etc and now China. All of these were the hotspot for cheap goods. All lasted to the point where the local workers wanted better wages and living conditions and to buy better quality stuff.

They will never be able to force people or companies to invest without the situation existing. Otherwise it is just a Con job and will not accomplish anything more than a short one time economic growth 'blip'. What you will see is that money being invested in reing around in whergional but not local industries. The stuff being made I China will now be made in the closest local and politically stable but low labour cost area. A lot of that has to do with fuel and transportation costs as well as the demand for better value ie quality goods. Unless there is a good reason ie potential profit that potential investment money will keep shiftng around in where it ends up but unless things change it will not be invested locally.

There is solid documentation that more government spending undermines economic performance and vice versa. This study is a diversion from the real causes of the government created recession, and the so-called Keynesian stimulus which was sold as a boost to the economy, in spite of the facts. http://www.forbes...ormance/

"Two forces make American laws too complex. One is hubris. Many lawmakers seem to believe that they can lay down rules to govern every eventuality.""The other force that makes American laws complex is lobbying. The governments drive to micromanage so many activities creates a huge incentive for interest groups to push for special favours. When a bill is hundreds of pages long, it is not hard for congressmen to slip in clauses that benefit their chums and campaign donors. ""Complexity costs money. Sarbanes-Oxley, a law aimed at preventing Enron-style frauds, has made it so difficult to list shares on an American stockmarket that firms increasingly look elsewhere or stay private."http://www.econom...21547789

RyggTard ignores a third reason. The general stupidity of his conservative peers, who don't have sufficient brain cells to comprehend the rules.

And then of course there is the issue of Republican/Libertarian scum complaining that it's too hard simply because they feel simplification will allow them to more easily engage in all manner of corrupt activities.

Like Enron and it's deregulatory ties to the corrupt Bush Administration.

"The other force that makes American laws complex is lobbying." - RyggTard

Consider the Libertarian propaganda organization the AEI...

"Founded in 1943 and located in Washington, D.C., the American Enterprise Institute for Public Policy Research (AEI) is the Godfather of Washington neo-conservative lobby groups - America's richest, largest and most influential think tank. It is also regarded as one of the Bush administration's closest allies."

"The problem with Chicago-style politics is that every favor one pays to one group ends up alienating another.""Trying to please the green lobby by killing the Keystone XL Pipeline ends up angering construction unions without guaranteeing environmentalists support. ""Obama raised millions from venture capital firms during his presidential campaign, the Post reported, twice as much as John McCain. At first the industrys investment in Obama seemed to pay off: The $787 billion stimulus bill earmarked $80 billion for non-carbon energy investments.""Even the most devoted machine politician, however, will run up against the institutional, Constitutional, and factional walls that the Founders built into the American system to protect republican government from itself. "http://freebeacon...ays-pay/

There are a lot of things wrong with Chicago style politics, and to the extent that George Bush Jr. adopted that politics in the white house, goes a long way in explaining why that presidency was the most corrupt in American History, and produced such spectacularly bad results.

But of course Corporations investing their massive hoard of cash in the economy rather than sitting on it has nothing to do with Chicago Style politics.

RyggTard is just humiliating himself again.

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